When China announced that it was granting greater market access to global asset managers, the starting pistol fired on a new race for market share.

Opened up to international fund firms in March 2013, the Renminbi Qualified Foreign Institutional Investor scheme allows managers to launch funds directly into China – provided they already have a presence in Hong Kong.

That has meant that as world asset managers scramble for a share of the Chinese investment pot, custodians with a local presence have been in a race to tempt them into partnerships with the strength of their Chinese regulatory connections and quality of service.

HSBC is making a strong early showing. Three weeks ago asset manager Ashmore Group announced it had won the bragging rights by becoming the first UK company to be licensed to invest in China’s equity and bond markets directly. Its partner in the endeavour was HSBC.

The bank’s securities lending business has done well out of RQFII. Not only can it lay claim to being the first custodian bank to offer a facility under the revised scheme in the UK, but it has also been picking up clients under the scheme much more widely in Asia. It says it has about 42% of the RQFII market.

Cian Burke, co-head of HSBC Securities Lending, said the organisation’s links throughout China have proved to be attractive to international firms looking to secure authorisation quickly.

He said: “We managed to work with the China Securities Regulatory Commission and Ashmore to fast-track their application. The licence has now been granted.” He added that Ashmore was waiting for the State Administration of Foreign Exchange to give it a quota.

Burke said that although China’s market is opening up at a faster pace, asset managers still face compulsory hurdles which need to be cleared before a licence is granted.

He said: “Our role is critical for the success of those applications. You need an onshore custodian, which is the role that HSBC provides to shepherd the application through – the asset manager can’t apply directly.”
Burke has responsibility for all aspects of investor services within the securities lending business, including asset servicing, settlement and clearing. The team on the ground in China has grown to 110 people over the past 20 years.

He said: “The team is very well connected into the local market environment, in the exchanges, into the regulators, which enables us to get a lot of these applications through. You need to have a very strong cultural awareness of what it is like to do business in China. Obviously having a team in China is very important. These are all Chinese nationals, so home-grown talent.

“They spend a lot of time interacting with our sales and business development teams and these are the guys that are out talking to the international clients.”

HSBC continues to recruit as and when mandates come through the door, according to Burke. The company continues to eye expansion in and around China, with plans for further development of its “near-shore” operation in Guangzhou.